January 06, 2008	Sunday	Zilhaj 26, 1428

RIYADH, Jan 5: With crude reaching the $100 mark, the expected has finally happened. Richard Arens, who runs a one-man oil brokerage, ABS, offered $100,000 on the New York market on Wednesday for 1,000 barrels of oil, producing the much talked of $100 per barrel.

NYMEX futures also reached a level of more than $100 on Thursday, based on increased violence in the Niger Delta of Nigeria that removed 500,000 barrels per day (bpd) from the market, and a mixed report coming from the US Department of Energy (DoE), which indicated lower than expected strategic oil stocks in the US.

The DoE reported that overall stocks had dropped by more than four million barrels.

On the other hand, the news of delay in bringing on stream the Khursaniyah oil field project also aided in firming up the market. No specific dates have been given for a new start-up date of production.

As the New Year began, analysts have been pointing towards the tightening crude markets. Most agreed that crude prices would continue their erratic and upward march this year, too.

Goldman Sachs, one of the most active banks in the energy market, raised its price forecasts for 2008 by $10 early in December. The price could reach $105 by the end of the year, a bank report said.

The London-based Centre for Global Energy Studies (CGES) projected an average of about $90 in the first half of the year.

“There are conditions in which we would see well over $100 per barrel, such as a cool winter, tightness of Opec supplies or non-Opec supply not growing as much as predicted,” he said.

CGES in the meantime, upped its 2008 average price forecast to $82.

Oil’s record rally will continue into next year with prices averaging above $77 a barrel as tight Opec supplies and Middle East tensions outweigh a slowing US economy, a Reuters poll showed earlier during the week.

The monthly survey of 36 analysts put the consensus forecast for US crude futures in 2008 at a record average of $77.62 a barrel, up $3.19 from last month’s poll. The average price for oil so far this year is $71.76.

The US Energy Department’s Energy Information Administration (EIA) estimated oil prices to average nearly $85 a barrel. “Judging by Opec’s unwillingness to advocate an increase in output after crude oil traded at $99 a barrel, it looks like high oil prices are here to stay,” said Merrill Lynch in a research report.

“We might witness crude prices going up to $120-130/b next year if there are actual supply disruptions from countries, such as Iran or Iraq,” Ken Koyama, director of strategy and industry research at the Institute of Energy Economics, Japan, told reporters in Tokyo earlier the week.

Markets are indeed stretched. Even the news of Ms Bhutto’s assassination made traders nervous and prices registered a rise. And interestingly this happened despite the fact that Pakistan is not an oil heavyweight. It pumps about 60,000 barrels a day, and consumes around 350,000 barrels a day.

And, then despite the strong crude markets, since August, the Bush administration has been adding 50,000 barrels a day to the Strategic Petroleum Reserve, with plans to kick up the pace to 70,000 barrels a day by the end of January.

That US oil tank of last resort now contains 695 million barrels of oil — enough to keep the American economy running for just 56 days. And this binge buying by the US government has added as much as 10 per cent to the price of crude, an oil consultant told a Senate panel recently.

What’s more, in the recent energy bill passed by Congress, President Bush asked — and received — authorisation to double the size of the Strategic Petroleum Reserve.

However, not every one agrees that the crude markets would remain bullish. Some have been arguing that slow global economic growth, particularly in the United States, could help temper price gains.

“I do have some concerns about demand,” said a Washington-based analyst for oil consultancy PFC Energy, David Kirsch.

Kirsch, however, emphasised the “financialisation of oil”, or the use of oil as an investment product for speculators and even pension funds.

“It started late last year. Before it was primarily hedge funds; now we’re seeing pension funds, which are very conservative investors, taking long-term positions in oil as part of a larger portfolio strategy,” he emphasised.

Based on current fundamentals, and the fact that a psychological barrier ($100) has been broken, increases are leaning towards a new barrier of $125, some are beginning to argue now. No real factors are available to substantiate when this is feasible, but a harsh winter in the northern hemisphere, in combination with increase in violence and instability in Opec countries would surely push prices towards the $110 per barrel mark very soon.

With bulls reigning, the $100 era is finally here and likely to stay for at least some time to come.